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Circle and Coinbase stablecoin not approved by regulator

Both companies are regulated, but their coin is another story

Circle’s “stablecoin” just got a big boost from one of the largest retail cryptocurrency exchanges, but there’s a nuanced issue: the token itself isn’t regulated, at least as far as one of its overseers is concerned.

On Tuesday, Circle—the peer-to-peer payment service that owns crypto exchange Poloniex—and Coinbase announced the launch of CENTRE, a consortium that aims to facilitate the adoption of stablecoins. Those are tokens that are supposed to be pegged to fiat currencies by holding them in reserves.

Circle’s USD Coin (USDC) is being marketed as safe, allowing users to “move dollars anywhere in the world in minutes instead of days. Cheaply and securely.”

What’s more, Circle’s status as a regulated institution is also used to imply that USDC is, “regulated, transparent and verifiable”:

“Circle is a regulated Money Transmitter, so we’re an open financial book. Before USDC can be used, the associated USD is deposited with one of our accredited bank partners — and we publish those holdings regularly to verify the 1:1 ratio.”

Indeed, Circle was the first recipient of the New York State Department of Finance’s (DFS) “BitLicense” back when it was a Bitcoin wallet service. However, Circle changed its business model at the end of 2016 and got into the peer-to-peer business. It only returned to crypto trading when it acquired Poloniex earlier this year.

But is USDC itself regulated by DFS?

Modern Consensus reached out to DFS asking that very question and we received this one-sentence response:

“Circle has not been approved to offer USD Coin to New York consumers.”

We contacted Circle as well but received no response as of press time and received this response from Josh Hawkins, the company’s senior vice president for global corporate communications:

“Circle has submitted an application to NY for USDC to be approved for use in the state of NY and we look forward to working with the NY DFS on this application process.”

Two competitors—Gemini and Paxos—also launched stablecoins last month, the Gemini dollar (GUSD) and the Paxos standard (PAX). Like Circle and Coinbase, those two companies are regulated by DFS.

Yet stablecoins by Gemini and Paxos received additional seals of approval by DFS with a string of added regulations and got a press release from New York State, to boot:

“As part of the approval of these new products, DFS has established required conditions to ensure that each trust company maintains robust policies and procedures to address risks and apply New York’s strong standards and regulations regarding anti-money laundering, anti-fraud, and consumer protection measures.”

It also included that GUSD and PAX had to:

“Ensure that authorized stablecoins are fully exchangeable for a U.S. dollar, with conditions to ensure monitoring and recordkeeping.”

Last week, Gemini cofounder Cameron Winkelvoss caused a stir when he tweeted:

Nonetheless, Gemini will have to answer to regulators in Albany since its stablecoin is within their purview.

Market caps
Other stablecoins have a long way to go before they catch up to Tether (Data source:

Circle, Gemini, and Paxos aren’t the only stablecoins out there. There’s of course Tether, the product of Bitfinex and currently the countercurrency in about half of all Bitcoin exchange trades. Questions—lots of themremain as to whether Tether holds enough dollars to back the 2 billion-plus worth of tethers circulating at the moment.

While Circle and Coinbase are playing ball with regulators far more than, say, Bitfinex and Tether, New York’s Department of Financial Services hasn’t yet blessed their stablecoin.

[5:48 p.m. ET—This piece was updated to include Circle’s response.]

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Lawrence Lewitinn, CFA was the founding editor in chief of Modern Consensus. Disclosure: Lewitinn owns no cryptocurrencies in his portfolio.